General Precious Metals
Almaden Minerals (TSX: AMM) CEO Morgan Poliquin on the Nearly Decade-Long Journey from Discovery Hole to the Verge of a Positive Permitting Decision at the Ixtaca Project in Mexico
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the President and CEO of Almaden Minerals (TSX: AMM)(NYSE: AAU), Mr. Morgan Poliquin. Morgan, how are you?
Morgan Poliquin: I'm excellent. Thank you so much. Thanks for having me on again. Hope you're well too.
Gerardo Del Real: I'm well, thank you for asking. It's an exciting time for Almaden shareholders. I've followed the company for a little bit, I want to say close to a decade now, Morgan. I remember the first drill hole that went into Ixtaca. It was a blind discovery, it was a fabulous intercept and now we're at a pretty important milestone for the company.
You're on the verge of what I believe will be a positive permitting decision. You recently updated stakeholders on the progress for the Ixtaca Project. I would love to get an overview of that update, because it was pretty extensive and I really think it speaks to what the future of community relations looks like.
I think you should teach a masterclass on how to go about it from the very first hole, and even before then when you first get into these communities, all the way up until this point. I'll leave it to you to fill in the details because there are plenty.
Morgan Poliquin: Well thank you very much for the opportunity. Yeah, how do you summarize 10 years of work since the discovery? As you mentioned, it's 10 years ago. Well, it was 2010 so almost. Look, it's a long journey to go from a raw discovery to a fully permitted mine. Often you don't fit all that work into one mining cycle.
As we know, the mining sector is cyclical and I think a big thing for us is managing those bad markets, which hopefully, knock on wood, seem to be changing. But in the meantime you've got to be able to go through all the steps and keep the progress going on the project. We're very proud to have been able to accomplish the things we've done. Principally, we are focused on having an open, transparent and safe environment to discuss a project with our local stakeholders.
The curious thing about mining is that very few people have any firsthand experience with it. They don't really think about it in their daily lives. And we're surrounded by the products of mining. And in fact, as I always like to point out, our civilizations, we define our progress from the stone age, the bronze age, et cetera. Those terms allude to really the mining materials that we're using. It's integral to human life, but yet people don't have contact with it.
Mexico is a mining country. It presents an opportunity for us to give firsthand experience to our local stakeholders. We started doing that very early on in two ways. Number one, we've had up to 75 local people work in our exploration program. And we've taken now nearly 500 people to see, in sponsored mine tours that we've sponsored, operating mines in Mexico.
They have firsthand experience. They're not learning about mining from third parties or off some webpage. That's been the key, having this dialogue. We have had 50 technical sessions where we bring mining experts in on all subject matters; explosives, tailings. And we have an open and we think really fruitful discussion. That's been going on over that decade since of discovery with our local communities and we have combined that effort with all the necessary studies that go along with that.
Obviously, any kind of project, whether it be a hotel or a mine or otherwise, has to understand the full impact and whether that be getting the INAH, the archeological commission in Mexico, to study the area to ensure that there aren't going to be archeological impacts, or that they're mitigated if there are. Well we've done that and we've got a clearance for INAH to develop in this area.
We've also done something on the social side, which is actually required for oil and gas development in Mexico, but not mining, which is a social impact assessment. It's called an EVIS in Mexico is the acronym. What it means is that it's one thing to say, "Well I've been working in this community for 10 years and I have great relationships." But it's another thing for somebody independent to go in and speak to people separately, confidentially and understand how they self-identify, how they see themselves and what they think of the company and what their hopes and dreams and concerns are. Sometimes there might be things that people are unwilling to tell you directly. We felt that that study was extremely important and constructive. While we feel like there weren't any big surprises, nevertheless, there's always a better understanding that can evolve from that.
Those are the kinds of leading edge things that we've done. And obviously there's a whole host of things that are project specific. But these studies have been all part of the feasibility process and a lot of hard work. That's what has gone into our permit plan.
It's not just what are you going to do with the rock? Where are your roads going to be? It's about cost-benefit analysis on the engineering side, but it's also about long-term social and environmental plans that involve, we think, not only a mitigation of impacts, but also an enhancement of local opportunities and resources.
For example, our mine plan involves the construction of a new water dam and reservoir. The plan is to build it in a permanent fashion so that it can be handed over to local communities at closure. We're actually enhancing access to fresh water as part of the mine plan for local communities.
Gerardo Del Real: Let me play devil's advocate a little bit, Morgan, because I know that there's always going to be two sides to every story. Let me get right into what the typical complaints tend to be when we see a company that is near a permitting decision.
First off, is there a need for a tailings dam?
Morgan Poliquin: In this case, we do not have a tailings dam. We use filtered or dry stack tailings facility in which we comingle our tailings with the waste rock, which in this case is buffering limestone. In fact, there's no tailings dam in the mine project. Not all geologic environments allow for this, but in our case all the conditions are there which allow us to eliminate the use of a tailings dam, which means that there's no potential for a catastrophic dam failure because there's no dam.
Gerardo Del Real: Excellent. Will you be taking water away from the community or contaminating the water in the community just to make a couple of bucks with your fancy new polymetallic gold-silver deposit? When I say fancy and new, I mean 10, 11 years in the making. Right?
Morgan Poliquin: Well that's right. Well thanks for that question. It's a great opportunity to explain what our mine plan is. As I mentioned, there's going to be a new water reservoir. Just to dial back to understand the water in the context of the geography, basically the the creeks don't flow throughout the course of the year. They only flow when it rains.
So you kind of have flash floods and this water, the local communities have been watching this water kind of flash flood out away downstream and there's no way of capturing that water. In fact, local communities have had a plan to build a water reservoir dam, much like we have in our mine plan, for years before we came. So obviously we don't want creeks flash flooding through our mine infrastructure and we also need water for the mine operation.
We've done extensive, what we call hydrology studies into something called a water balance study. That's based on wells that we drilled simply for measuring purposes and little weirs that we've installed to measure the flash flood and of course all the weather information that we have.
We have a really good understanding of what the local conditions are like. We are basically providing the infrastructure that the community has been trying to get for years, which is to capture this fresh water, to divert it around the mine infrastructure with this fresh water dam. Our studies show that it will provide not only access for the water for the mining operation, which is an 11-year mine life, but will provide community access to this fresh water. Of course that infrastructure will remain after closure so it actually enhances community access to clean, fresh water.
Gerardo Del Real: Wonderful. You've been there for over a decade. What does your environmental record look like in the community? Could I walk in and go speak with the locals and hear a bunch of stories about how badly you've damaged the local environment?
Morgan Poliquin: Well, obviously we own our own drills and drilling and exploration is extremely low impact activity. You're not clearing the land or doing any of those things. We have very small little portable drills. Our drilling operations are even lower impact than you would have typically. But of course, drilling uses all biodegradable additives and things like that. Clay for example, to make the drilling go smoothly and water as our lubricant.
That's the exploration side and, as you might expect during the course of an exploration program, we've had the environmental enforcement agency of the Mexican government, they're called PROFEPA, come to our project a number of times to inspect us and make sure that we're complying and we've never been fined. We are in full compliance with the regulations. Exploration is a very low impact activity.
Gerardo Del Real: Excellent. I have dual citizenship. Both my parents are from Zacatecas, Mexico. I live here and was born here in the US, have a deep respect and love for both countries. As you can imagine, Morgan, I have a deep love and respect for my heritage.
Are there any archeological, cultural heritage sites on your property that would be affected as a result of this mine coming to fruition?
Morgan Poliquin: Well, as part of the process to submitting a permit, we also have a respect for our host country where we're working and the cultural heritage, which is very important, as it is everywhere in the world of course. We asked INAH, the government agency responsible for the preservation of cultural heritage, the archeological commission essentially of the Mexican government, to come and they spent nine months on the project doing a study and ultimately cleared the area for development.
Gerardo Del Real: Excellent. Now I'm going to play devil's advocate on the community side. It's very easy for groups that, frankly, many times don't speak Spanish, don't live in the country, aren't from the communities that they are vocally opposing, to throw shots from a desk from New York or, pick a state, pick a city, or Mexico city. Pick a place.
The bottom line is it's very easy for a project of this caliber, which there aren't many of, to get opposition from NGOs. How is your relationship with the community? And I'm asking you a softball question because I've been there, I've spoken with people from the community, I visited the project, I know about the overwhelming support. Can you speak to that a little bit, Morgan?
Morgan Poliquin: Yeah, obviously we've been there a long time. We're comfortable saying that we have a very positive relationship with the community. I think it's not just us saying that. We've signed an MOU with local water users. Some local community members, have signed a petition in favor of the project and actually repudiating people from outside the project area who purport to represent local community members. Gerardo Del Real: I like it. Let's talk the economics. We have the social and the community relations addressed, the environmental relations, we've talked about that. That's why I'm convinced that you will get your permit, that the decision will be favorable and we expect this in the next month or two if I'm not mistaken. Is that accurate, Morgan?
Morgan Poliquin: Yeah. We've been guiding our stakeholders by the end of the year and we still see ourselves on track for that.
Gerardo Del Real: Let's talk dollars and cents. Using a gold price of $1,275, which of course we're way above, and a silver price of $17 per ounce, which we're also above, the project has a net present value of $310 million – that's US, it should be noted – using a discount rate of 5%, an after tax internal rate of return of 42%. Obviously, those are very robust economics. You also happen to have a mill for the mine that I think in mint condition was something along the lines of $70 million, and the mill is mint condition.
Can we talk about the leverage to higher gold and silver prices? Because the deposit is a polymetallic deposit and it truly is with gold and silver kind of equal parts. Right?
Morgan Poliquin: That's exactly right. Well, in my mind that's not unusual. It's not every day you see 50-50 gold-silver contribution to the bottom line. Really, that makes it a true precious metals deposit that is attractive to a broad range of investors, I think.
Silver usually kind of surpasses gold when we're in those kind of boom hot markets for metals and often suffers more greatly than gold. I think our deposit provides exposure to both those metals and yeah, you're quite right. We also like to point out that, over these tough years, the tough market years, people have really liked the fact that when you look at our lower price scenario in the feasibility study, this is a robust deposit that doesn't need the prices we have today in order to be successful. But obviously when we're significantly above those base case prices it's very pleasing and I think, Ixtaca, the bottom line is it's a robust deposit.
Gerardo Del Real: I want to talk Azucar Minerals (TSX-V: ANZ)(OTC: AXDDF) and Almadex (TSX-V: DEX)(OTC: AAMMF), which you of course are President and CEO of. It's worth noting that the projects that are flagships to both those companies came from the Almaden portfolio and the three-decade headstart that you have in eastern Mexico. Before that though, I want to ask if there's anything else that you'd like to add in regards to Almaden and Ixtaca?
Morgan Poliquin: Yeah, speaking more on the economic side of Ixtaca, Ixtaca is a deposit that I think is not only robust in the economics, but it also doesn't have a whole bunch of swiveling parts and bits. It's a very straightforward project. It's an open pit. We have demonstrable community support as we've discussed. It's a straightforward project in so many ways – environmentally, socially. We're able to use this modern technology and so on that we've discussed. No tailings dam and we have limestone host rock, which is benign in the sense that it is buffering, it's not acid generating. And in fact, our limestone host rock and tailings, our preliminary test work we did as discussed in the feasibility study, has the potential to be used as a construction material like aggregate or cement.
It's quite a remarkable deposit with no obvious impediments to development. Sometimes there's great challenges to developing a mine, but in this case we're enhancing local water supply and all the things you've allowed me to discuss. I would like to point out that the gold and the silver occurs in high-grade veins and these veins occur in a zone of veining that we like to call a swarm. We call it a swarm because the veins change direction and they branch and reconnect and enclose little bits of this barren limestone. It's the perfect environment where you're in an open pit mine, you're able to separate the limestone from the veining with what we call grade control and good geology.
So we think that this deposit is really special in many respects. And it's kind of gone under the radar screen. I notice some banks that don't even have our silver grade – which as you pointed out is half the deposit – in their list.
We pioneered – which kind of brings us into a Azucar and Alamadex – we pioneered a new area in Mexico. I did my PhD in geology on this. We're kind of pioneers in this respect. And we've been through a really tough market. I think we're getting close to this 10 years of work coming manifest. And of course for a lot of people, people are focused on the permitting. But this is a really special deposit and this whole area has a great deal of potential. We think we're just tapping in, not only in Ixtaca because we think there's plenty of exploration upside there, which we didn't speak about, but also this whole region.
Gerardo Del Real: Excellent. Let's talk about the region, Azucar Minerals and the El Cobre Project. You've had some very, very good hits out of that project. Most recently you've had a lot more smoke than fire. We've spoken in the past about exploration. It's a process. You have a very supportive partner and technical expertise to lean on in Newcrest and you have a balance sheet, frankly, that allows you to continue exploring.
The most recent news release, I believe you hit 44 meters of 0.63 grams per tonne gold and 0.27% copper at the Norte target, which I think in itself carries significant tonnage at this point. But the other targets have yet to provide, in my humble opinion and I'm not a geologist, the continuity or the grade that that the Norte Zone has thus far shown in mass.
Can we speak to that a bit?
Morgan Poliquin: Sure. To step back, we've got 5 kilometers of strike length with multiple porphyry targets in it and a huge alteration zone. Obviously, we haven't pulled a hole that demonstrates something world class yet.
But I would like to point out that one of our directors was a key member of the discovery team at Oyu Tolgoi and it was 150 holes into the program before they really got into the deeper, high-grade portion of that. But they had defined near-surface mineralization, which given the location wasn't considered a slam dunk to be economic. That went on for a long time, that exploration program. But they had a lot of smoke as you pointed out. And it took a while to find the fire. Our gut tells us that there's something really significant here that we have yet to figure out and piece together and we're dealing with a big area and a drill hole is two inches in diameter.
When you're looking for something that's a couple hundred meters wide potentially, because the best part of Oyu Tolgoi – I don't mean to compare Oyu Tolgoi to El Cobre by any means – but the best part of that was 200 to 300 meters wide. While it worked out to be a huge amount of metal, these things can be localized even though you're dealing with a big system. What we're doing right now is, anyone who cares to kind of sift through the tea leaves will notice that the most drilling at the Norte Zone and at the Villa Rica Zone are areas where porphyry mineralization was actually exposed at surface. Again, talking about a discovery that was huge, the Oyu Tolgoi, the part that made it economic wasn't exposed at surface. The part that it was exposed at surface was not the best part.
We think that we're at the top of the porphyry environment and we've got a huge alteration zone. And what we're focused on right now is drilling areas where we have clear targets that have never been drilled before. The past drilling was focused on areas that mineralization just happened to be exposed at surface. And we don't expect that to be the case for most of the system. It is a process. My view is that at Norte and Villa Rica and Porvenir, three areas with good drill intercepts of porphyry mineralization, in all three cases we haven't quite figured out where the mineralization goes to depth. There's a variety of reasons for that. Rather than kind of hammer away on them at this moment, we think that understanding the bigger picture will help us connect up the dots.
It's a two-fold process, drilling the known areas to try to understand where they're going, but then not losing the forest for the trees. This year, as we hope we've explained, is about really understanding the entire project as a whole, testing the really exciting looking targets that have never been drilled before and using the information at the end of that process to vector in on, looking for the big kahuna that all this could be coming from potentially.
Gerardo Del Real: Drill results still pending, drills are still turning. Is that accurate?
Morgan Poliquin: Absolutely. At the current time we have three drills spinning and results pending.
Gerardo Del Real: Excellent. Let's pivot to Almadex. Of course the Almaden being the predecessor, project generator. You had a great project in Ixtaca, you hit a blind hole. It became a company maker for you. Looking to duplicate that success with Almadex. Can we get an update there? It's been quiet the past couple of months, although I know that you had some news recently where you optioned out a project.
Morgan Poliquin: That's right. We've got a number of projects that are optioned out and we expect more of that as the market improves and other companies. Just to explain that process, we can generate more ideas than we can test ourselves and it's not a question of which are the better ones by any means. We think the more the merrier, the more irons in the fire or whatever metaphor you want to use. The more you got going, the more pucks – I'll do an Canadian metaphor – the more pucks you put on net, the more likely are your odds of making a discovery.
We'll increasingly partner out projects as we move forward. We're looking at acquiring new projects currently and so we look forward to being able to announce that as those things happen. Our acquisition is ongoing. Our efforts to work with new partners are ongoing as we've seen with some announcements. We have some new partners this year.
We also expect to be doing some drilling this year. Our internal view is with our company drills we'd like to drill at least one project a year. So we expect to do some drilling on our projects this year.
Gerardo Del Real: Morgan, that was a very, very thorough update that went nearly half an hour. I really appreciate the level of detail that you provided and fingers are crossed on the permitting front at Ixtaca and I can't wait for further results from the El Cobre Project and the portfolio in Almadex, which of course includes a royalty on Ixtaca. Correct?
Morgan Poliquin: That's right. Almadex has a royalty on Ixtaca as well as El Cobre and a host of other projects.
Gerardo Del Real: Morgan, thank you so much. Appreciate it.
Morgan Poliquin: Thank you so much for the opportunity. Appreciate it as well. Thank you.